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In this paper we analyze the pass-through of a commodity price shock along the food price chain in the euro area. Departing from the existing literature, which focuses on food commodity prices as quoted in international markets, we use a novel database that accounts for the role of the Common Agricultural Policy in the European Union. We model seve...
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... This area of empirical research is limited and has not necessarily achieved consensus, particularly the existence of a second-round effect. Mallick and Sousa (2012), Ferrucci et al. (2012), Holtemöller and Mallick (2016) and Gelos and Ustyugova (2017) document the importance of commodity price shocks. Walsh (2011), Ginn and Pourroy (2020) and Ginn and Pourroy (2022) find that commodity prices could lead to second-round effects. ...
This research examines the global implications of agricultural production and price fluctuations via Global Bayesian Vector Autoregression (GBVAR) model. We develop a novel Paasche agriculture price index, based on the relative time-varying contribution of four dominant food commodities shifting contributions of major food commodities (rice, maize, soybeans, wheat), pivotal for global sustenance. The analysis reveals that while agricultural production shocks are important, they exert a comparatively lesser impact than agriculture price shocks. Higher agriculture inflation can be destabilizing via lower output and higher aggregate inflation.
... This area of empirical research is limited and has not necessarily achieved consensus, particularly the existence of a second-round effect. Mallick and Sousa (2012), Ferrucci et al. (2012), Holtemöller and Mallick (2016) and Gelos and Ustyugova (2017) document the importance of commodity price shocks. Walsh (2011), Ginn and Pourroy (2020) and Ginn and Pourroy (2022) find that commodity prices could lead to second-round effects. ...
We analyze the cyclical patterns of energy, non-energy, agriculture, metals & minerals ("MetMin") and oil prices and how they influence global output and aggregate prices. Since 1960, we find presence of three supercycles with a potential for a fourth emanating from the Ukraine crisis and ensuing effects of the global COVID-19 pandemic. Furthermore, commodity cycles share the same cyclical components as output. Using a Structural Vector Autoregression (SVAR), we document that a shock to output increases all commodity prices. We find "second round" effects for all commodities, where agriculture inflation has the highest impact on aggregate inflation, which may help to explain why food inflation seems to be destabilizing for a large number of countries.
... For analyzing the relationship between aid shocks in different sectors of energy aid, we follow the methodology adopted by Hudson (2015) and Ferrucci et al. (2018). 5 We regress the error term from Eq. (1) for a particular sector on its own lagged positive (e.g., ErREG + it−l ) and negative (e.g., ErREG − it−l ) errors separately and also lagged positive (e.g., ErOS + it−l ) and negative (e.g., ErOS − it−l ) error terms of other sectors (OS). ...
... Hudson (2015) used this methodology in panel framework, whereas Ferrucci et al. (2018) used it in time series context. 6 Using a fixed effect estimator is unsuitable for estimating the above equations involving positive and negative values of error terms as the method purges out country-specific heterogeneity by applying within transformations. ...
Empirical evidence on general aid volatility reveals that it is a limiting factor that impedes aid effectiveness. Unlike the previous studies focusing on aggregate aid volatility, this paper seeks to analyze the energy aid volatility across sub-sectors of energy aid in 67 aid-recipient countries during 2002-2019, given that energy aid effectiveness is essential for achieving the targets of sustainable development goals (SDG)-7. Specifically, we examine the contribution of different sub-sectors of energy aid in total energy aid volatility, identify sectoral volatility trends, and explore the interlinkages between the aid shocks of various sectors of energy aid. Volatility measures are based on the squared residuals obtained from a regression of aid on trend and the trend square, calculated separately for each country and energy aid sector. Findings reveal that renewable aid is the most important contributor to total energy aid volatility, particularly in lower-middle-income countries. Policy aid volatility is highest in low-income countries. We hardly observe a decline in the volatility of energy aid and its sub-sectors, except for nuclear aid. Moreover, we notice a lack of sectoral greening of energy aid as donors do not shift disbursement targets from non-renewable to renewable energy generation sources. From a policy perspective, these findings suggest that donors and recipients need to work on reducing energy aid volatility by focusing on specific energy aid sectors that majorly cause volatility to enhance energy aid effectiveness. Findings also call for understanding the factors that inhibit the greening of energy aid in terms of shifting concession resources from non-renewable to renewable energy generation.
... An additional concern for policymakers is that unstable agricultural commodity prices are directly transmitted into inflation. Extensive literature supports the claim that high agricultural prices are quickly integrated into the consumer price index [17][18][19]. The outbreak of COVID-19, in addition to disrupting supply chains, limited the movement of workers in the agriculture sector. ...
The Russian invasion of Ukraine on 24 February 2022 accelerated agricultural commodity prices and raised food insecurities worldwide. Ukraine and Russia are the leading global suppliers of wheat, corn, barley and sunflower oil. For this purpose, we investigated the relationship among these four agricultural commodities and, at the same time, predicted their future performance. The series covers the period from 1 January 1990 to 1 August 2022, based on monthly frequencies. The VAR impulse response function, variance decomposition, Granger Causality Test and vector error correction model were used to analyze relationships between variables. The results indicate that corn prices are an integral part of price changes in wheat, barley and sunflower oil. Wheat prices are also essential but with a weaker influence than that of corn. The additional purpose of this study was to forecast their price changes ten months ahead. The Vector Autoregressive (VAR) and Vector Error Correction (VECM) fanchart estimates an average price decline in corn, wheat, barley and sunflower oil in the range of 10%. From a policy perspective, the findings provide reliable signals for countries exposed to food insecurities and inflationary risk. Recognizing the limitations that predictions maintain, the results provide modest signals for relevant agencies, international regulatory authorities, retailers and low-income countries. Moreover, stakeholders can become informed about their price behavior and the causal relationship they hold with each other.
... A list of theories helps explain international price transmission, such as market structure (Meyer & Von Cramon-Taubadel, 2004), transaction cost (Jamora & von Cramon-Taubadel, 2016), the exchange rate (Ehrmann et al., 2011), etc. In particular, trade volume (Ceballos et al., 2017;Myers & Jayne, 2011) and policy intervention (Deuss, 2017;Ferrucci et al., 2012) are dominant explanations in the current literature. The third set of studies is related to the methodologies for price transmission. ...
Understanding the determinants of price transmission is critical for designing effective policies to cope with grain price fluctuations and protect vulnerable consumers and producers. This study investigates transmission patterns of soybean prices from international to local markets in different contexts of import dependency. Empirical results suggest that price transmission is more pronounced in the low-import dependency period than in the high-import dependency period. We find suggestive evidence that policy intervention and market power are important explanations for this price phenomenon.
... The linear VECM is commonly utilized to fit the data within different economic markets (see, for example,Fannoun and Hassouneh, 2019;Ferrucci et al. 2012). ...
This paper studies the impact of Palestinian workers' remittances from Israel and its volatility on Palestinian economic growth using quarterly data over the period 2000-2016. A joint estimation of a vector error correction and multivariate generalized autoregressive conditional heteroskedasticity models are applied for such purpose. Cointegration tests provide evidence of a long-run positive equilibrium relationship between remittances and output growth. Results also indicate that remittances have influence on both first and second moments of Palestinian GDP. Further, findings suggest that while Palestine GDP has no influence on the first moment of Palestinian workers' remittances from Israel, it can cause an increase in its volatility.
... An increasing number of young people choose to go to cities for off-farm work, and the loss of agricultural labor is driving cropland abandonment [1]. In addition, the increase in grain storage capacity caused the grain supply to exceed the demand, which was followed by a decline in food prices [2]. Insufficient income from crops exacerbated farmers leaving farm work and led to the abandonment of farmland. ...
Although agricultural land abandonment (LA) is accompanied by land degradation, it could be considered a kind of self-rehabilitation. Studies have shown that long-term LA has profound ecological and environmental benefits, whereas few studies have compared LA with human intervention (HI), which involves planting and fertilization in agroecosystem restoration. Here, we established four different scenarios based on local livestock husbandry, including LA without HI, LA with slight human intervention (HIS), medium human intervention (HIM), and intensive human intervention (HII). LA experiments were conducted for 3 years and repeatedly sampled three times. The soil bacterial and fungal communities were determined to present the ecological impacts. In this study, LA and HIS could save soil inorganic carbon and total calcium (Ca) contents and benefit soil mycorrhizal fungi and plant growth-promoting rhizobacteria. LA and HIM benefited some microbial communities associated with complicated organic compounds. Human interference methods did not significantly increase soil nutrients after 3 years of farmland abandonment. However, indigenous vegetation increased the risk of plant diseases based on soil microbial communities. Forage grass may control the risk, and HIS was a cost-effective scenario in our study. Moreover, we should maintain a cautious attitude toward HII to prevent excessive intervention.
... His results show that the response of countries to shocks is different and that sectors respond differently across countries and commodities, with sectoral characteristics explaining a third of all the explained variation. Ferrucci et al. (2012) analyse the pass-through of food commodity prices to final consumer prices in the euro area and obtain that commodity prices are the main determinant of the increase in CPI and PPI. Gelos and Ustyugova (2017) consider a broad range of structural characteristics and policy benchmarks in 31 advanced and 60 emerging and developing countries, and obtain that countries with higher food shares in CPI baskets, fuel intensities, and with previous high inflation levels were more susceptible to develop inflationary effects from commodity prices shocks. ...
... We follow the approach used by Furlong and Ingenito (1996) and Ferrucci et al. (2012) to study the pass-through along the pricing chain by considering a VAR model. In doing so, we run country-by-country 12th-order VAR models for the global price index of all commodities and its main four categories (agricultural raw materials, food and beverages, energy and metals). ...
This paper analyses the commodity price pass-through along the pricing chain for the global commodity price index and the indices of its main categories (i.e., agricultural raw materials, food and beverages, energy and metals) in the world, advanced and emerging economies. To do so, the study considers country-by-country vector autoregression models and pool the results by taking weighted means for 18 advanced economies and 19 emerging countries, as well as for the world (defined as the sum of advanced and emerging economies). The results show the following: (i) there is evidence in favour of partial pass-through from commodity prices to producer prices, although the evidence for the pass-through to consumer prices is less evident; (ii) the pass-through in the world seems to be led by both advanced and emerging countries for producer prices and only by advanced economies for consumer prices; (iii) higher prices in the four categories (agricultural raw materials only in the short-run) induce significant higher producer prices in almost all cases, with shocks in the prices of energy and metals showing the largest effects; and (iv) energy prices explain the highest variability of producer and consumer prices.
... Anand et al. (2014) and Holtemöller and Mallick (2016) find strong pass-through from a world food price shock to core inflation in India. Ferrucci et al. (2012) find a similar mechanism in the European Union (after controlling for subsidies). This result is also confirmed in a crosscountry analysis of developing and emerging economies by Gelos and Ustyugova (2017). ...
We examine whether food price shocks are a major source of macroeconomic fluctuations. We estimate a small open economy DSGE model using an alternative Taylor rule applied to Chilean data. The empirical evidence suggests that food inflation played a non-trivial role in shaping Chile's de facto monetary policy actions. Consistent with its commitment to price stability, the central bank increases the policy rate in reaction to food inflation. Despite an immediate monetary policy reaction to a food price shock, the policy rate gradually tapers off. This is due to a second-round effect on non-food inflation propagated by the food price shock. A main finding is that monetary policy that targets headline inflation is welfare improving.
... A permanent 10% increase in global prices of food commodities raises Latvian consumer prices by 0.9% in the medium term. This estimate is slightly higher than in other EU countries (Ferrucci et al. (2012) and Peersman (2018)) since food products in Latvia have a larger share in the consumption basket. Our estimates show that two thirds of the pass-through from global food commodity prices to consumer prices in Latvia take place during the first year. ...
This paper develops a Short-Term Inflation Projections (STIP) model, which captures cointegrated relationships between highly disaggregated consumer prices and their determinants. We document a significant pass-through of domestic labour costs, crude oil and global food commodity prices to consumer prices in Latvia. We also assess the model's forecast accuracy of Latvia's inflation during 2014–2018 and find that the STIP model statistically significantly outperforms a naïve benchmark model in real time.
Keywords: inflation forecasting, autoregressive distributed lag model, pass-through, oil prices, food commodity prices, labour costs
